Chapter 1
Federal Mortgage Laws and Consumer Protection Regulations
Course: Safe Mlo Prep
Subject: Safe Mlo Prep
Chapter: Ethics
OVERVIEW
Mortgage fraud is a federal crime that destroys borrowers, communities, and the integrity of the financial system. MLOs must be trained to recognise fraud schemes — whether committed by borrowers, third parties, or industry insiders — and understand their obligation to report suspicious activity.
- Two Categories of Mortgage Fraud
Fraud for housing: Committed by borrowers to obtain a loan they would not otherwise qualify for. The borrower benefits by getting a loan — the misrepresentation serves their housing goal.
- Overstating income or employment
- Misrepresenting occupancy (claiming primary residence when it is an investment property)
- Hiding liabilities or debts
- Using gift funds as a down payment when they are actually a loan
Fraud for profit: Committed by industry insiders — MLOs, appraisers, title agents, real estate agents — to extract money from the transaction. The misrepresentation serves financial gain beyond a normal commission.